New Disney hotels on hold

ORLANDO — Nearly five years after it outlined an ambitious vision of standalone hotels, niche parks and retail centers built in outposts far beyond its world famous theme-park resorts, the Walt Disney Co. today has no such projects in its public development pipeline.

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That's the case after the company recently abandoned plans to build a roughly 500-room, Disney-branded hotel near Washington, D.C. Disney, which spent $11 million to buy land in the area in early 2009, said the timing simply isn't right for the project.

The move follows an early stumble at Disney's first big foray into standalone resorts: Aulani, the roughly $850 million hotel and timeshare that opened Aug. 29 on the Hawaiian island of Oahu. Disney was forced to suspend sales in the project for two months this summer after it realized it had underestimated the annual fees needed to cover the resort's operating costs; Disney will now have to subsidize the fees paid by early timeshare buyers for the next 50 years.

At the same time, Disney executives have pledged to investors to reduce capital spending once the company completes a current slate of projects that includes the Hawaiian resort, two new cruise ships and park expansions around the world. Capital spending at Disney's theme park division nearly doubled during the company's 2011 fiscal year — from $1.5 billion to $2.7 billion — and is expected to approach $3 billion in 2012.

"They have more than enough to chew on for the next three to four years," said Tony Wible, a media and entertainment equities analyst at Janney Capital Markets. "And the early headwinds in Hawaii — to put it politely — probably lead them to be less confident."

Disney says it may yet build more hotels outside Central Florida and Southern California, where it operates its massive Walt Disney World and Disneyland resorts.

"We have seen tremendous enthusiasm for Aulani, and all of our key sales locations for Aulani are performing well. Based on our experience to date, additional standalone resorts in the future are a very real possibility," Disney spokeswoman Tasia Filippatos said.

Disney said the decision to back out of Washington was entirely unrelated to Aulani's timeshare problems; the company says it never planned to include a timeshare component in the D.C. project.

To be sure, there was always an element of uncertainty for Disney's presence in Washington. Even when the company announced it had bought 15 acres along the Potomac River in May 2009, it said only that it was "considering" using the site for a hotel.

And other, more pressing projects subsequently supplanted it on Disney's priority list. For instance, seven months after buying the Washington property, Disney, after years of negotiations, signed a framework deal to build its first theme park resort on mainland China. The first phase of Shanghai Disneyland, along with two hotels and a retail district, will cost roughly $4.4 billion, though more than half of that price tag will be borne by the Chinese government.

But analysts say the decision to scrap the Washington project also reflects just how challenging it could be for Disney to sustain standalone hotels, which, after all, can't bank on theme park visitors to drive occupancy. They are a particularly heavy lift in a still-moribund real estate environment in which Disney can't bank on quick time-share sales to help sustain a resort.